Sunday, March 29, 2009

Free Trade and Imaginary Lines Called Borders

Don Boudreaux, Cafe Hayek: Practically speaking, there is free trade throughout the United States. My family and I (in VA) routinely buy wine from California and Oregon, oranges and lemons from Florida, computer software from Washington state, maple syrup from Vermont, peaches from South Carolina, television newscasts from New York and Atlanta, lumber from Alabama, spicy sauces from Louisiana, crabs from Maryland. The list is long.

And yet no one, not even Lou Dobbs, insists that the Boudreaux family would be richer if only the government in Richmond could find a successful way around the U.S. Constitution and managed to slap stiff tariffs on California wine, Florida citrus fruits, cajun seasoning from Louisiana, and you name it.

Surely the burden of persuasion is on those who would insist that each American would be more prosperous if only his or her state were better able to restrict trade with citizens of other states. If this burden of persuasion cannot be met, then the case for free international trade is pretty solidly established.

Anyone skeptical of free trade must explain why political borders are economically relevant. With the exception of pointing to (mostly rather vague and poorly considered) national-defense issues, protectionists have never managed -- and I dare say never will manage -- to impart genuine economic relevance to political borders.

Because all reasonably prosperous countries today impose no, or only very few, internal restrictions on trade, two facts stand: (1) free trade is in fact quite common, and (2) free trade is beneficial.MP: Here's another way to look at it: Since there is no economic reason to restrict goods from crossing imaginary lines called "city limits," "county lines" or "state borders," and we allow free trade among the 50 U.S. states and their counties and cities, there is also no economic reason to restrict goods from crossing imaginary lines called "national borders."

15 Comments:

The only difference I can see in this example, is the money issue. Our dollar is not the same as the yen, or peso. Wouldn't this have some effect?

And also, the labeling issue. As a beef producer in the US there are many rules and regulations I must follow that my counterpart in Mexico or South America does not. And when the beef from those countries come into the US they do not label that they use product that we in the US aren't allowed. It's might be free trade but it isn't fair trade.

You still do not learn. The crisi started from the large trade imbalance, China saving and US spending.

When are you peple going to learn from your mistakes?

"To understand these threads, it is useful to recall some key factors leading up to the housing bubble. The U.S. economy was experiencing a low interest rateenvironment, both because of large capital inflows from abroad, especially from Asian countries, and because the Federal Reserve had adopted a lax interest ratepolicy."

Governments want to use trade barriers to coerce other governments into reciprocal agreements to impose matching laws & regulations (labor, safety, environmental) and taxes, so that both jurisdictions are equally disadvantaged by the burden of government.

Free Trade with agreed upon rules is the ideal. Let us not reward the mercantilist's economy with un-balnced trade and their accumulation of foreign reserves. Balanced annual trade growth with proven mercantilist economies is the protection for the rule playing free trading economies.

As an old free trader, let me try this on you. Members of a nation-state have made massive sunk investments in public goods: military, legal system, common language, infrastructure, etc. In the face of intra-national competition, the required redemployment brought with new trade is distressing, and to adjust people must leave behind many local public goods in which they have invested, but still retain access to the national public goods, moving from Montana to Wyoming can be done. In competition with other nations, redeployment may require moving from,say, the US to Mexico, leaving behind your share of huge sunk investments: military service, legal systems, language, etc. I suspect that the bargain that is the nation-state includes some stability, particulary in the face of chanllenges from other nations. Economists often invoke the theoretical possibility of compensation to increased trade, since it is wealth creating, and in practice because of the massive sunk investments the "compensation" takes the form of limiting trade. Go ahead, shoot me down.

Interesting...With the signing of the Treaty of Rome in 1957, France, Italy, Belgium, West Germany, Luxembourg and the Netherlands formed what would eventually become the European Union. For six decades prior to the treaty, those countries were about 55% as productive as the U.S. But over the following 25 years, those countries essentially caught up to the U.S. in terms of productivity.

When that historic economic treaty was signed, three countries were roughly on par with those original six -- Denmark, Ireland and the United Kingdom. However, a funny thing happened in subsequent years -- those three countries started falling behind their former peers. So in 1973 they joined the original group and their economic fortunes improved. It took time, but the U.K. now is as productive as Germany.